Evaluation of Starbucks Corporation - Case Study Example

Introduction Starbucks Corporation is a big multinational coffee and coffeehouse chain/outlet company which is based in United s. Starbucks currently is the biggest coffeehouse company in the whole world, with a record number of 15,011 stores located in 42 countries. Starbucks sells brewed coffee, espresso-based hot drinks, hot and also cold drinks, snacks and products for instance mugs and coffee beans. Starbucks has an entertainment division and Hear Music brand, Starbucks also markets music, books and film. A lot of these items are seasonal or specific to the locality of the store. Some grocery stores sell Starbucks branded ice cream and coffee. (Starbucks Corporation, 2007) From where it was established in Seattle, Washington, as only a local coffee bean roaster and seller, Starbucks has rapidly expanded. In the 1990s, the corporation was establishing a new store each workday, a tempo which continued into the 2000s. However domestic expansion has ever since slowed down, although Starbucks continues to spread out in foreign markets, The company's first location out of the U.S. and Canada was launched in 1996, and at present they constitute about one third of Starbucks' total stores. (Starbucks Corporation, 2007) As at November 2007, Starbucks Corporation had 8,505 company-owned coffeehouse outlets global: 6,793 of them located in the United States while 1,712 are located in other countries and the U.S. territories. Besides, the Starbucks has 6,506 joint-venture or licensed outlets, and 3,891 of them are in United States and 2,615 are in some other countries or in U.S. territories. This thus brings the total number of locations (as at November 2007) to 15,011 worldwide. (Starbucks Corporation, 2007) History 2003: Starbucks concluded acquiring Seattle's Best Coffee and Torrefazione Italia from the previous owners AFC Enterprises, increasing the total number of Starbucks-operated outlets worldwide to over 6,400. In 2006 September 14, competitor Diedrich Coffee company stated that it would sell many of its company-owned retail outlets to Starbucks company. This sale included the company owned sites of the Oregon-located Coffee People chain. Starbucks company representatives were quoted as saying that they will translate the Diedrich Coffee and Coffee People sites to Starbucks stores. January 2008, Howard Schultz, chairman of Starbucks took up again his position as Chief Executive Officer, substituting Jim Donald, who earlier on in 2000 had succeeded him. Schultz's main challenge is to re-establish what he calls the "distinctive Starbucks experience" in the moment of high expansion. Industry observers believe that Schultz have to determine the manner in which to contend with soaring materials prices and increased rivalry from lower-price competitors, which includes McDonald's and Dunkin' Donuts. (Findingdulcinea, 2008) On 31 January, 2008, Schultz stated that Starbucks Company would suspend its warm food items, originally planned to launch countrywide in 2008, so as to refocus the brand on coffee. 1. Evaluation of HRM Each employee requires more learning in order to improve his /her skills, no matter how best a candidate is, he/she can not be 100% percent qualified. Thus, the human resource management should implement learning management system (Beardwell & Holden, 1997) Starbucks Corporation has understood this aspect and that is why it recognizes that its employees are one of their highly valuable resources. The very first guiding rule in their mission statement also addresses the Company's principle towards its employees: "Provide a great work environment and treat each other with respect and dignity". The management recognizes that the Starbucks employees play a foremost function in the expansion of the company. (Hoovers.com, 2007) Starbucks Corporation training can be termed as systematic enhancement of knowledge, skills and attitudes of the needed by an employee in order to perform a given task. Development is the growth of an employee in terms of capability, understanding and awareness. In Starbucks Corporation training and development has helped the company to; 1. Develop a workforce that can perform higher-grade assignments 2. Increase efficiency, effectiveness and standards of performance by the employee 3. Keep the employees informed 4. Provide the usual training of new recruited workforce (Armstrong, 2006) Compensation and benefits Workers need to be compensated for their performance in order to encourage them to keep up or improve on that performance. The moment the human resource establishes the performance of the worker, managers should reward to commensurate with the worker's achievement. These will ensure maximum production and effectiveness of the worker; current compensation programs should include a mix of basic pay, equities and variable pay. (Kotler, 1996) this has been taken care well by the Starbucks human resources management as All Starbucks employees are known as partners no matter which job position the employee occupy. Starbucks's cultural values bestow employees with a feeling of meaning to their duty even if it is just only serving a cup of coffee. Each one of the partner (even part-timers) is entitled to get health care, take part in the Bean Stock program, and also get a free pound of coffee every week. In the Bean Stock program, Starbucks employees are given stock lower than the fair market value a number of times per year. At the same time the employees also take part in a 401(k) profit sharing plan. (Hoovers.com, 2007) Human resource management (HRM) practices of Starbucks Corporation are among the best as attested by being rated as on of the best companies to work for by Fortune magazine. (Fortune.com, 2002) The management knows that the most important asset for any organisation-its human resource-requires extensive investment, commitment, financial benefits among others to be highly motivated and also committed to the company. (Armstrong, 2006) 2. What is the source of Starbucks competitive success in the United States The competitive advantage of Starbucks comes from the fact that, Starbucks positions its products based upon quality and its image. Starbucks Corporation created the coffee shop revolution in America, and it has had the capacity to be the public instructor on espresso coffee. Starbucks coffeehouse chain is the leading specialty of coffee retailer in the America, with many locations in around the globe. Starbucks Corporation positions its products on a comparatively simple strategy. They sole centre on quality and experience, instead of price. An evaluation of specialty drinks compared to its competitors discloses very small differences. (Fortune.com, 2002) The corporation image is one of the main elements to its current success. Starbucks has recognized that individuals don't just come for to take coffee; they come for the ambience. People come to socialize, study, read or just to enjoy the music as they drink their coffee. Understanding this, Starbucks try to make its coffee stores unique in one way or another which will generate an appealing ambience. Starbucks also has a distinctive setting for its locations; Starbucks focus on having a lot of cosy seating to make people sense welcomed for them to stay more than they may have planned to. (Fortune.com, 2002) In addition Starbucks positions each one of its store individually in accordance to the definite location it is located. This flexibility approach has contributed greatly to the success of the Starbucks in the past years. Another significant aspect of Starbucks locations is that they are usually environmentally friendly. Though other retailers locate themselves in related ways, none of them focuses to the level at which Starbucks has. Currently consumers appear to respond to those companies that are environmentally friendly who appear to really care about the world. (Puget Sound Business Journal, 1999) More so advertising strategies that Starbucks uses have also been a major success factor. Starbucks has experienced a lot of success advertising locally, rather than national. Starbucks advertises a lot via print mediums, since Starbucks's target market seems to be educated individuals who do additional reading than an average person. (Fortune.com, 2002) It is crucial that Starbucks continue positioning their brand for what it stands for: "an innovative industry leader that produces high quality products". Brand image, as it has been already revealed, is an objective upon which each one the future useful strategies will work to achieve. (Puget Sound Business Journal, 1999) 3. How vulnerable do you think Starbucks is to competition from imitators What is the logic behind Starbucks' strategy of expanding into international markets Why is it important for the company to do this Competition from imitators Starbucks's present and direct competitors in America are Diedrich Coffee, and Einstein/Noah Bagel Corporation. (hoovers.com). The rivalry, however, is not evenly balanced. Diedrich Coffee runs 370 coffeehouses located in 37 states and in 11 countries (hoovers.com). Einstein/Noah Bagel Corporation runs 460 bagel cafes in America (hoovers.com). Where as Starbucks has got over 4,709 coffeehouse locations in more than 20 countries (hoovers.com) Thus it is apparent that Starbucks has hardly any key competitors, and the rivalry has nowhere near Starbucks's volume of its operations. Starbucks Corporation is the leading coffee retailer, coffee roaster and brand of specialty coffee in the whole world. However smaller competitors, pose possible threats to the company. (Hoovers.com, 2007) In order for Starbucks to fight against this potential market threat, the company must drive to retain its position and be the first mover. The company must continuously innovate fresh products so as to be ahead its competitor's competitive schemes. 3. Logic behind Starbucks' strategy of expanding into international markets Starbucks expansion to international market is because of the need to gather and increase the company's market share and increase its financial base. Advancement in technology including communication efficiency and better international relations has contributed to the promotion of international trade. Increasing competition is another aspect that has enhanced the Starbuck's international expansion. Through its international marketing approaches Starbucks has been able to meet its objectives. Starbucks management have had an obligation to further propel the company forward thus able to create and maintain a healthy international marketing culture within itself. (The Wall Street Journal, 2001) Importance to the company Starbucks has always had an objection of being a leader in the industry, thus the international market offer the company opportunity to increase its market share and increase its growth. One of the core strengths of Starbucks Corporation over the past years has been its tireless endeavour to make their product universal. Starbucks' marketing plan of expanding its specialty coffee operations is to reach its customers where they are, be it at work, travelling, shopping, or when dine by establishing their store in all places where its customer are found. Starbucks has undertaken this strategy by located its store world wide, so that it can achieve its objectives and goals thus international markets provides Starbucks with and opportunity to achieve its goals and objectives. (Hoovers.com, 2007) 4. What is Starbucks' approach to entering international markets What are the pros and cons of this approach Starbucks has been using (Foreign Direct Investment) FDI market entry which is the direct ownership of processing, manufacturing or assembling facilities in a target country by a Starbucks company. Hollensen (2004) explains that in FDI organizations can transfer resources to a developing country which has a good customer base and then set up branches in any other regions or areas of the country the resources include; technology, personnel and capital. The company will be able utilize the resources in the target country including in the human resources. Joint ventures In general Starbucks has been using joint ventures as a way of entering new international markets. The beauty of joint ventures is that it allows for technology sharing and joint product development. Another main advantage of joint ventures is to get proper political connections that will allow for favours to be achieved. Joint ventures also are suitable for Starbucks since it allows the company to use its financial resources to eject in the partners and develop stores which are suitable, standardized ensuring that quality and brand is not compromised. This gives Starbucks the much required control of the stores in terms of product development and management. Through keeping each one of the stores corporately owned by the company, Starbucks can easily control and also monitor all locations ad operations thus make sure that high employee relations and good customer service is consistent all through. (Hollensen, 2004) Disadvantages The disadvantage of this market entry strategy is that it shifts the financial risk from the individual to the corporation. Thus holding up more financial resources the Starbucks would have used to open up more stores, not forgetting that the financial risk is squarely placed on the corporation. Another shortcoming is that joint ventures require a lot of market research and development expenses since Starbucks do not have enough information of the new markets. But supposing the company use market strategy such as franchising such cost could be saved. (Kamm, et al, 2004) 5. Traditionally Starbucks has stayed away from a franchising strategy. Is this wise, particularly in the context of an international expansion strategy Generally, franchising transfers the financial risks from the Starbucks to an individual business. Subsequently a benefit of Starbucks Corporation franchising would be opening many more new stores which will have less risk to Starbucks Corporation, and make more profits through doing so. More so the company would have little research and improvement costs since the franchisee is having greater familiarity of the local market where the store is opening in relation to disadvantage of franchising is that Starbucks would have to give up some amount of management over the store, and also the manner it operates. Regardless of the high number of rules and directives that Starbucks Corporation would theoretically have in position for a franchisee, each one of the store would be managed slightly different. In addition, in franchising there is a danger of various stores omitting some of the menu to its standards, and instead picking and selecting what products (coffee equipment, music, books) to avail to the customers. Through keeping every one the stores corporately owned Starbucks is able to manage and monitor all locations and operations and to ensure high employee relationships and good customer care via steady management, good store operation, and good location environments. (The Wall Street Journal, 2001) 6) Challenges that Starbucks face in establishing a presence in Asia in general and Japan in particular How successful do you think the company will be given the strategic choices it has made Asia is one of the continents which have realized high economic achievements. The region boasts of an improved infrastructure, good international relations, good education system and a large population capacity. The economy of the region has grown tremendously with many countries such as china Taiwan, Singapore, Japan and other experiencing positive growth. This has subsequently led to many companies establishing their business in this region and as it has become attractive especially with the high population the region has. However there are some challenges that companies experience when entering the region this are; Socio-cultural forces Culture is a problematic issue for many international marketers because it is inherently nebulous and normally difficult to understand. It is possible that employees of a Starbucks can violate the cultural norms of the people in the host country without knowing hence the people become uncomfortable with the behaviour. Original cultures are becoming more elaborate and diverse in terms of religion, food, clothing and lifestyle. Starbucks must therefore be able to adjust skilfully to the culture aspect of Asian market and use marketing strategy that will ensure that the company capture the new market. (Kamm, et al, 2004) Challenges of Japanese markets Political factors Whereby the companies have to deal with the political interferences that may be practiced by the Japan government According to research political systems of nations affect the conduct of businesses; Japan political environment is currently stable. Over the past three years Japan has been transformed to a more respected economy. Also the legal system of the country is a bit complex. So Starbucks Company has to expect complex procedure in legal such are licensing. Economical factors; Japan is one of the countries that is witnessing high economic growth rate, its real GDP has grown in the last few years reaching. Inflation rate in the country has eased for the years at it has steadily remained at 2%. Another good sign of economic growth of the country is unemployment rate which is estimate to be below 2% with the population having a high literacy level. This transforms to high value labour force. Starbucks Company will thus be able to get ready labour which is well educated and skilled. Social factors; unfortunately, Japan has some disparities in terms of wealth. Majority of upper class and middle classes live in big towns. These two classes have relatively high earnings and are highly susceptible to foreign products and luxurious goods. On contra they show very limited western influence, and this is attributed to cultural aspects. Starbucks will have to apply marketing strategy which can address this aspect. (Kauser & Shaw, 2004) Succeeding I believe that Starbucks will gain a substantial amount of international market share if it enters into Asian markets. Starbucks has a good reputation throughout the America and other foreign countries it has its presence I think that this brand image will market the company in Asia and make definite profitability and an increased market share in Asia Starbucks will be able to overcome international challenges and competitive forces through continuing with their market based strategy of their highly differentiated items and distinctive brand image. Its marketing strategy of joint venture will incorporate the knowledge of Asian partners to capture the market. Conclusion Overall, Starbucks appears to be a well-built and well-rounded company, as a leader in the industry, Starbucks have built a very strong brand name which has assist Starbucks to gain a substantial greater share of the total market in contrast to its competitors. The management has revealed to have ability to forecast market trends and variations in consumer behaviours. Starbucks Management in addition has fashioned a corporate culture which promotes soaring productivity levels through their proficient employees. Financially, Starbucks Corporation is stable in spite of its rapid and unremitting growth strategies. Starbucks Corporation has done extremely well in establishing reliable, long-term relations with its suppliers. For most part, as it has been indicated, Starbucks is reasonably very capable in most aspects of its business. In parts where Starbucks Corporation does perhaps need expertise, competencies, or skills, it has formed strategic pacts with companies which are more effective and efficient. Appendix Chart 1: Starbucks vs. Industry The Chart compares Starbucks stock against the average Special Eateries Industry. As shown in the graph, Starbucks has clearly been a central force of the industry, since the industry average follow precisely the same pattern, just a little below Starbucks, in past five years (2001-2006) (Source: hoovers.com) Reference: Armstrong. M. (2006): Handbook of Human Resource Management Practice, 10th edition, (Kogan Page) London, Findingdulcinea (2008): Starbucks: Out with the New, In with the Old." "Finding Dulcinea" January 12, 2008 (www.findingdulcinea.com/news/business/Starbucks/ ) accessed on 8/2/2008 Fortune.com (2002); Best Companies to Work For; Retrieved 10 Feb., 2008 on the World Wide Web: http://www.fortune.com/lists/bestcompanies. Hoovers.com. (2007) Retrieved 10 February, 2008 on the World Wide Web: http://www.hoovers.com. Hollensen, S. (2004): Global Marketing, a Market-Responsive Approach, 2nd Edition, Essex, and Pearson Education Kamm, J.B., Frederick, R.E. and Petri, E.S. (2004): International marketing strategies, Connecticut Kauser, S & Shaw, V (2004): The Influence of Behavioral and Organizational Characteristics on the Success of International Strategic Alliances. International Marketing Review 21, no. 1 Kotler, P. (1988): Marketing Management: Analysis Planning and Control, Prentice-Hall Puget Sound Business Journal, (1999): Albertson's to open Starbucks coffee bar; Retrieved 10 Feb, 2008 on the World Wide Web: http://seattle.bizjournals.com. Starbucks Corporation, (2007): Retrieved 10 February, 2008 on the World Wide Web: http://www.starbucks.com. The Wall Street Journal, November 6, 2001 Read More